Three Rules Every Stock Trader Should Follow

[inthemoneystocks 11]

One of the number one reasons that traders lose money is because they cannot follow the most important rules. In fact, some novice traders do not even have any rules in place when trading. They are simply relying on luck or tips to make money in stocks. Here are three rules that every stock trader should adopt if they want to have a chance in this market.

 

1. The 10 Percent Rule. The ten percent rule was made famous by the legendary trader Jesse Livermore. He said that he would never take more than a 10 percent loss on any stock. Whenever he broke this rule and let his emotions get the best of him he really suffered a bigger than expected loss both financially and mentally. A ten percent loss keeps you in the game and allows you to fight another day. I cannot begin to tell you how many times I have seen one trade turn into a huge loss. This giant loss often hurts the trader involved and has even been the cause of many blown up accounts.

 

2. Do Not Trade With Capital You Cannot Afford To Lose. There is an old saying, scared money never makes any money. Whenever traders and investors trade with capital they cannot afford to lose it hinders their thinking. Trading comes with enough pressure already, but betting the rent or the mortgage on a stock simply affects the traders ability to read or follow that stock's price movement correctly. A good rule is to also apply the 10 percent rule to position size. Never put more than 10 percent of your account into any one stock position. This will allow you to find other trading opportunities should they arrive. All of your capital will not be tied up in one stock. By keeping the position size to just 10 percent of your account you will not have too much of an emotional connection to any one trade. Keeping the stress of trading down is extremely important for your health.

 

3. Learn To Use And Read Charts. While most of the people in the world will use fundamental analysis to trade (PE ratios, EPS, book value, ect) it is the charts and technical analysis that will show you the actual money flow of a stock. The bottom line, the trend is your friend except at the end. Reading charts of stocks will show you patterns and signal where the money is going and flowing. Remember, it is money flow that moves stock prices not opinion from some talking head on the financial news channel. How many times have you seen a company report great earnings only to see the stock plummet and vice versa? Often, the chart will tell us this will happen before it does. Chart reading will also help traders to place stop losses and know where pattern breaks down or fails. Traders must understand that it is just as important to know where you are wrong on a trade as it is to know when you are correct. Charts do all of these things and more when a trader can read them. Every trader and investor should get educated in reading and understanding charts.

 

 

Nicholas Santiago

 

InTheMoneyStocks

[CrazyCzarina 17]

There are so many things that a trader should learn while he is wanting to be part of the trading business. If you want to be a trader then you need to set your own set of rules for trading.

[aimhi 10]

Yes the point is to get specialized in the field where we wishes to enter and make money or we will be loosing our capital rather than earning any amount from trading business.

[CrazyCzarina 17]

Every stock market investor wants to make a good profit from stock market but the journey to stock market most often starts with No Rules.

[Donald 5]

Very good post, thank you! I would say in addition however, that this is true for every asset. Be patient and set rules, like the 10 percent. A good example for why it is important to only trade with money you can lose, is that why you perform better in demo accounts. Simply because you are not stressed about losing it. You might make some bold moves but oh well. It was just chips like in free online poker.

[CrazyCzarina 17]

Losing because your analysis was wrong. Losing because your impatience, greed or fear stepped in. Those are the losses you can get rid off, by training self-discipline.

[Donald 5]

Exactly! Love your comments. Always makes me focus on what I have to do.

[Jason Solomon 5]

Yeah, I think what you highlighted here is trading 101 and should not be neglected. Just as Livermoore said: "The game taught me the game. And it didn’t spare me rod while teaching." Even he lost almost everything not even once until he learned this lesson.
When you have money they lose you're more likely not to make desperate moves and have patience to wait for the right time.

[CrazyCzarina 17]

Losing is part of our business and we can not stop it but yes we can try to manage our money so that we can minimize our loss.

[divyanshisharma 2]

Yeah, i agree with these rules should be obeyed by traders

[CrazyCzarina 17]

Some of America's greatest companies started as penny stocks, and now trade for $10, $20, or even $50 per share. If the business continues to grow, savvy investors hold on for the ride. Meanwhile, many others sell far too soon, gloating about their 100% gain, then crying as the shapes reach for the stars.

[fxeconomist 11]

On 12/12/2021 at 10:26 PM, CrazyCzarina said:

Some of America's greatest companies started as penny stocks, and now trade for $10, $20, or even $50 per share. If the business continues to grow, savvy investors hold on for the ride. Meanwhile, many others sell far too soon, gloating about their 100% gain, then crying as the shapes reach for the stars.

Does it mean that buy and hold strategy for some broad index like S&P 500 is the best one? Or stock picking still makes a sense in the long-run?

[CrazyCzarina 17]

If you're a deep-pocketed hedge fund or an unusually skilled currency trader, forex trading can make you rich. But for the average retail trader, Forex is not a shortcut to wealth, but a rocky road to huge losses and potential poverty.

[fxeconomist 11]

On 1/10/2022 at 8:49 PM, CrazyCzarina said:

If you're a deep-pocketed hedge fund or an unusually skilled currency trader, forex trading can make you rich. But for the average retail trader, Forex is not a shortcut to wealth, but a rocky road to huge losses and potential poverty.

Correct, that's why I try low risk scalping system with Hotforex. What do you think about scalping?

[CrazyCzarina 17]

One of the biggest advantages of Forex scalping is that it allows you to make multiple trades per day. Many people like to constantly participate in the market. Most scalpers make many trades during the day, which can be very exciting for traders.

[anthonyconstantinou 0]

Yes the point is to get specialized in the field where we wishes to enter and make money or we will be loosing our capital rather than earning any amount from trading business.

[CrazyCzarina 17]

A small amount of capital is enough to start online forex trading without any significant transaction costs. Transaction costs mainly consist of fees earned by the broker from the spread. The spread is measured in pips or a percentage, which is the difference between the ask price and the bid price.

[aimhi 10]

These small amount accounts can be a good start even to test the broker's processes like withdrawal etc which we can't usually check through their free demo account.